Published at: 2/6/2017 1:31:29 PM
A quality property can be an excellent long term asset that can help you achieve important personal goals like building personal wealth or saving for retirement. Think carefully about why you are investing in property – what are your goals, and will a rental property help you achieve them?
Buying and selling an investment property involves paying a range of costs like stamp duty, legal fees and agent’s selling commission. These can amount to tens of thousands of dollars, and it will take time for your property to sufficiently rise in value to recoup these transaction costs. This explains why property is regarded as a long term asset – one you should ideally be prepared to hold onto for five or more years.
This long term approach means a rental property should fit your lifestyle – not just today but further down the track also. You don’t want to be in a position where a change in work or lifestyle means you have to sell the place prematurely and potentially cut short any profits on sale.
Investing in a property usually calls for funding through an investment loan. On the plus side, the loan interest can normally be claimed on tax, which helps to reduce the cost. Be sure to crunch the numbers to see how your cash flow could be impacted by any possible future rate hikes – you may not be able to raise the rent immediately following an increase in the loan rate.
The rental income earned on an investment property can go a long way towards paying off your investment loan. However, most rental properties experience periods of vacancy from time to time. Be sure your budget can handle these no-rent periods – no matter how brief.
All properties need regular maintenance but even with the best of care various items will need replacing at some stage. This can leave you facing bills for something like a new stove, a broken window, or even major roof repairs. It’s worth having a slush fund of cash to cover these expenses – or at least a back-up source of funds that you can draw on in an emergency.
Property is a very tax-friendly investment, and if the rental income doesn’t cover all the costs of owning the property (including loan interest), the resulting annual loss can normally be claimed on tax. This is what negative gearing is all about, and it’s a way of clawing back some of the tax paid on your regular wage or salary.
These tax savings are a real plus but don’t let tax perks be your main motivation for investing. A good investment property should stand on its own merits, delivering ongoing income and rising in value over time. Any tax benefits should be the icing on the cake – not the number one driver for becoming a property investor.
If you’re confident you have all your bases covered, it’s time to talk to an ME mobile lender to discover your borrowing power and get started putting your plans to invest into action.